Consumer Trust in Banks Declined in Past Six Months, Bank Execs Say

Innovation seen as key to boosting trust, but only one of four banks has laid out strategy.

In a survey conducted by BAI and sponsored by NewGround, 43 percent of retail bank executives said they feel consumer trust in banks has eroded over the last six months. That said, nearly a third of these executives see consumer trust growing six months from now. These new survey results supplement findings from the BAI & Finacle Banking Confidence Index, a measure of consumer sentiment on banking that was launched in October.

The index was created through a national, online survey of bank executives across 100 large U.S. financial institutions. It tracks how bankers view the overall economy and banking industry; changes that have impacted banks; the perceptions, performance and priorities of financial institutions; and the role of innovation in helping customers.

Seventy-five percent of respondents feel the overall employment situation in the country is worse now than it was half a year ago; only 30 percent see the economic situation being worse in 2010 than it is now.

Eleven percent of bankers feel their banks have a better understanding of consumers' financial needs than six months ago; one in four bankers believe banks will have a greater understanding by next year. The remaining 75 percent of bankers feel banks will have the same understanding of consumers' financial goals as they currently have.

A mere 12 percent of respondents felt TARP has had a positive impact on their bank.

While most bankers took a dim view of increased government regulation, 87 percent of those surveyed said the government's action to raise FDIC insurance to $250,000 had a positive impact on consumer bank deposits.

Although bankers note deposit growth and consumer savings rates have improved compared to six months ago, 36 percent feel their stock price is worse now and 46 percent say their overall profitability has declined.

"Most bankers have seen a positive impact on their own institution's balance sheet in terms of higher deposit balances, higher savings rate, and improved interest margins," said Ajay Nagarkatte, managing director, BAI Research, in a statement. "But increased costs due to new regulations seem to offset gains made from deposit products."

Eighty-seven percent of bank executives said future growth will come from innovations that improve customer relationships and services; 60 percent noted that innovations related to developing new products was a focus; and, 52 percent cited opening new channels as an "innovation activity" that would spur growth for their banks.

But banks struggle to spell out what their strategy for innovation entails. When asked what steps they will take to increase innovation, 50 percent of respondents said investing in more flexible IT systems. Only 26 percent of bankers surveyed said setting out a clear innovation strategy was among the steps they have taken.